Evaluate the existing compensation plan to determine if it is the most appropriate for your company. Explain your rationale
It is necessary to create effective compensation system in profit-oriented organizations. For businesses such as Coca Cola, compensation is a major cost that should be controlled, and yet, it is a form of investment that must generate positive returns for the organization. Most organizations use market-based compensation plans where employees’ income is based on the market rate. The market-based compensation is often used for low-level employees and entry-level managers. However, for employees in executive positions, organizations tend to use internal merit-based pay system depending on their performance.
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Coca Cola’s compensation strategy is aimed at attracting and retaining talent. Coca Cola has unique compensation plan that borrows from both market based and internally consistent systems. This approach is necessary as it enables the company to motivate its employees properly using appropriate and just compensation strategies borrowed from the industry and the organization’s financial performance. Regardless of whether the organization is using a market-based or an internal compensation system, both systems must have a sense of equity as seen in Coca Cola’s compensation system.
Coca Cola’s compensation system has its advantages. For instance, the performance-based approach used for the top managers ensure that the managers are properly motivated to make long-term decisions that will benefit the company in the long run. Top management compensation includes stock options, and it cultivates a sense of ownership. This strategy is also responsible for retaining top talent that is responsible for steering the company into profitability.
Coca Cola’s compensation strategy is also appropriate as it enables the company to retain its workforce. The compensation strategy entails salaries, bonuses, health programs, wellness, pension, and job development opportunities. All these opportunities form a comprehensive reward package that attracts and retains the best talent.
The most beneficial ratio of internally consistent and market consistent compensations systems for Coca-Cola
The compensation committee responsible for making compensation decision aligned with the company’s long-term goals develops the company’s compensation plan. However, Coca Cola operates in an extremely competitive industry; hence, its compensation approach should also borrow from the market. Coca Cola should maintain a ratio of internally consistent and market consistent compensation system of 1:1. Such a system will ensure that Coca Cola pays its employees based on factors such as experience and skills, while maintaining external equity. When employees sense a lack of equity in the compensation system, they perceive the firm as unfair and they are likely to have low motivation, commitment, and morale. A 1:1 ratio will reduce turnover and nurture productivity, which benefits the firm in the long run.
An organization should pay as per the market rate; otherwise, employees will perceive the organization as unfair. The organization should also maintain internal equity so that employees will not feel like the company pays other employees better. However, organizations that cannot afford to pay as per the market rate tend to create performance-based compensation system based on skills and performance. The beneficial pay range for either internal or market consistent compensation system is a + /-10% for employees in the same job range. Such range will give employees the notion that the organization is fair in its compensation.
Coca Cola’s Current Pay Structure
Primarily, Coca Cola uses a market-based compensation plan whereby employees receive compensation comparable to market rate. The market-based compensation system is used for casual workers and entry-level positions that attract a salary. However, the company also uses a merit-based system for increasing employee salary. Coca Cola managers holding important positions are compensated based on merit, and they receive stock options as part of their compensation.
Coca Cola supports its current pay structure claiming that it balances the organization’s financial goals with employee expectations. A market-based compensation system gives its employees the notion of job security, stability, and external equity. Entry-level employees’ work on a specific hourly rate, nonetheless they are given attractive packages as per the wages of the local markets. For instance, Coca Cola’s merchandiser is given an hourly rate of $13.03 whereas a warehouse supervisor has an annual income of $54,457 (Payscale, 2016). Coca Cola’s pay structure balances an internal system with external market forces that affect employee remuneration for almost its 700,000 employees.
Depending on the years of experience, employees are also entitled to bonus and other perks. Coca Cola offers a retirement plan, a 401 (k) and a company pension plan for its employees. A company pension plan caters for the non-unionized employees in the company. A large number of Coca Cola employees also receive health insurance and dental coverage. Other common benefits include company cell phone, life insurance, and tuition reimbursement (PayScale.com, 2016). Coca-Cola also offers variety of developmental opportunities for its well performing employees. High performing employees are given training opportunities at Coca Cola University, bonuses and other career advancement opportunities (Coca Cola, 2016).
However, Coca Cola’s top management is known to receive extremely high pay and enviable stock options. Coca Cola’s CEO is known to earn up $30.5 million, though the pay has been slightly reduced. Coca Cola’s Compensation Committee created a long-term compensation and incentive target for 6,500 top managers depending on the company’s performance (Esterl & Lublin, 2014). The company issued 340 million new shares and option for the top management, an extremely generous plan which gave the top management access to a lot of company shares (Esterl & Lublin, 2014). Stock ownership is an effective way of cultivating a culture of ownership and increased productivity among the top management (Ersterl & Lublin, 2014). Many challenged Coca Cola’s top management compensation plan claiming that it granted managers a lottery ticket to success, and it could have a negative effect on the company’s stock value.
Two Recommendations to Improve Effectiveness of Discretionary Benefits
Coca Cola should change its approach towards discretionary benefits to address employee dissatisfaction. Compensation is an important form of employee motivation; hence, it is necessary to put in place effective incentives to improve employee behavior. The law does not mandate discretionary benefits, and the employer offers it voluntary to improve productivity.
To improve effectiveness of the discretionary benefits, Coca-Cola should seek the opinion of the employees. Organizations are known to create discretionary benefits of their choice, however for the benefits to motivate employees effectively it should reflect on the needs of employees. Hence, Coca Cola should collect feedback from employees on the kind of benefits they are interested in before introducing new forms of discretionary benefits. Murphy (2009) argues that it is important to allow employees to be a part of the overall plan; additionally employees should be given a chance to administer their own plans through systems that enable benefit selection and provide enrollment information.
The second recommendation is Coca-Cola should realign its HR policies on compensation and practices to determine effective approaches. There are discretionary benefits that are now considered redundant; hence, Coca Cola’s HR should adjust its policies to suit the constant changes. As a multinational, Coca-Cola has to adjust its compensation practices as per the global and local practices; hence, HR has to change its approach.
Coca Cola is known to offer extravagant discretionary benefits to its top management; the company should create a sense of fairness by also increasing discretionary benefits to other employees.
Evaluate the types of employer-sponsored retirement plans and health insurance programs
Coca-Cola offers two types of retirement plans, a savings plan, and a pension plan. The savings plan is available for non-unionized employees, where the company matches their contribution. However, Coca Cola’s Enterprises Employees’ Pension Plan provides basic pension benefits to all U.S employees excluding a few employees covered by the collective bargaining agreements. The pension plan offers an annual benefit of 1.15% of the participants final average earnings multiplied by the number of years of service in the organization (Coca-Cola, 2016).
Coca Cola also offers different options for health insurance. Coca Cola offers medical cover including vision, dental, accidental death and dismemberment, short and long term disability, survivor’s benefits, dependent life insurance, counselling services among others forms of health insurance (Coca-Cola, 2016). Coca Cola’s medical and dental insurances also covers eligible dependents.
Coca Cola’s biggest competitor is PepsiCo. PepsiCo also has a savings and retirement plan aimed at improving the livelihood of PepsiCo’s employees. The company funds the company-funded retirement plan, whereas the 401 (k) plan is a savings plan whereby PepsiCo matches the contribution of its employees. PepsiCo also has an impressive health insurance program for its employees, which covers medical, dental, vision, life insurance, and disability insurance while maintaining flexible spending accounts. As a major competitor to Coca Cola, PepsiCo’s compensation and other packages are created to match Coca Cola’s so that PepsiCo’s employees can compete effectively with Coca Cola’s employees.
References
Coca Cola. (2016). Employee Engagement. Retrieved from: http://www.coca- colacompany.com/our-company/employee-engagement
Esterl, M., & Lublin, J. (2014). Coke Scales Back Executive Equity Compensation, Bowing To Pressure. The Wall Street Journal. Retrieved from: http://www.wsj.com/articles/coca- cola-tweaks-executive-compensation-plan-1412170448
Murphy, T.E. (2009). Benefits and Beyond: A Comprehensive and Strategic Approach to Retirement, Health Care, and More . Thousand Oaks, CA: Sage Publications.
PayScale. (2016). Average Salary for Coca-Cola Enterprises, Inc. Employees. Retrieved from: http://www.payscale.com/research/US/Employer=Coca-Cola_Enterprises,_Inc./Salary
